Highlights of Andy Fastow’s Testimony

One of the last issues raised in Fastow’s testimony was a series of calls from Skilling in October 2001, after Skilling had resigned, asking Fastow “why Enron wasn’t telling its story,” when The Wall Street Journal was writing about LJM. Skilling said that “all the transactions were proper and fully disclosed,” and that “shareholders should give us medals for doing all these deals,” Fastow testified. On redirect by prosecutor John Hueston, Fastow said he didn’t believe Skilling was urging him to go public about their alleged secret deals, but rather “The way I heard it was, ‘Toe the party line’ ” about LJM, he said.

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Ken Lay’s lawyer Mike Ramsey asked Fastow on cross-examination,”In connection with stealing from Enron, you were just looking Mr. Lay in the face and telling him a lie?” Fastow replied: “Yes, I was not loyal to him or Enron when I committed those crimes.”

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Skilling’s attorney Daniel Petrocelli questioned Fastow about the authenticity of the “global galactic” memo. “Is there some possibility, sir, that later on, having perhaps lost or tossed out the original, you went back and recreated or reconstructed the list?,” Petrocelli asked. “No, sir,” Fastow replied.

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Petrocelli also asked Fastow whether he was “100% certain” that the initials on the global galactic list were indeed those of former top Enron accountant Richard Causey. “I recall being there when Mr. Causey initialed them, seeing him do that,” Fastow said.

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Fastow testified about a list known as “global galactic,” that documented profits promised to partnerships run by Fastow when they did deals with Enron. “We had side agreements. That’s how we did business. This was a list of side agreements after the agreements had been entered into,” Fastow said. “Because the list was getting long, this was my way of keeping track of it, and [assuring] Mr. Causey, he was keeping track of it the same way.”

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Fastow testified that Causey not only approved global galactic but assured him Skilling was on board. But Petrocelli pointed out that Skilling didn’t initial the document. “If you really wanted to be sure Mr. Skilling was on board, you could have taken the 60 seconds to walk from your office to his office, show him these pieces of paper and have him initial them,” Petrocelli said. “I suppose so,” Fastow replied, adding, “It never dawned on me that it would be necessary to do so.”

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Petrocelli asked Fastow about the infamous Nigerian barge deal involving LJM2 and four former Merrill Lynch employees who served prison sentences over their involvement in the deal. “I believe I would not have acquired the barges without that bear hug” from Skilling, Fastow said. “I did that largely based on my understanding that LJM2 would have a similar guarantee from Mr. Skilling that it would be taken out in the future if necessary without a loss and its rate of return.”

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Fastow testified that former chairman Ken Lay was at a meeting in August 2001 in which he heard about a “hole in earnings” at Enron, just days before he gave a BusinessWeek interview claiming Enron was in its “best shape” ever. Fastow said of the Lay interview, “I think most of the statements in there are false.”

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In a heated cross-examination by Skilling lawyer Daniel Petrocelli, Fastow admitted, “I believe I was extremely greedy, and that I lost my moral compass, and I’ve done terrible things that I very much regret.”

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Petrocelli, at one point, told Fastow that his answers sounded well-rehearsed, to which Fastow replied: “With all due respect, your questions sound very rehearsed to me.” Petrocelli shot back, “We’re talking about the fact that your wife, because of your conduct, spent one year doing hard time. And you think that’s funny?” Fastow answered, “No, sir, it is not funny at all.”

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Lay opted to characterize a loss on an investment in the third quarter of 2001 as “nonrecurring,” even though a gain on the same holding was earlier characterized as “recurring,” Fastow testified, adding, “I thought that was an incorrect accounting treatment.”

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By October 2001, Enron’s suppliers refused to trade with the company and Fastow testified that he feared the company would collapse and that he and an aide went to Lay to warn him. “I said I thought this was a death spiral, a serious risk of bankruptcy. I said the majority of trades being done were to unwind positions.”

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“Within the culture of corruption Enron had, a culture that rewarded financial reporting rather than rewarding economic value, I believed I was being a hero. I was not. It was not a good thing. That’s why I’m here today.”

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LJM1, was designed to help the company “solve a problem,” Fastow testified. “We were doing this to inflate our earnings, and I don’t think we wanted to show people what we were doing.”

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Fastow quoted Skilling as saying, “Get me as much of that juice as you can,” after Fastow informed him that more money would need to be raised to continue making deals like LJM1.

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Fastow testified that partnerships like the LJMs were willing to do deals that Enron “just couldn’t do with others” because they were too risky or didn’t make economic sense.

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Fastow testified about pressure from Skilling to have one of the LJMs buy a minority stake in a Brazilian power plant owned by Enron because Enron’s South American unit was struggling to meet its earnings target. “I told him it was a piece of s–t, and no one would buy it,” Fastow said, adding that he relented, in part, because Skilling assured him he wouldn’t lose money on the deal. Fastow testified that there were many more “bear-hug” guarantees like this from Skilling in mid-2000.

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Fastow testified that the LJMs were legal and did many legal deals, but “certain things I did as general partner of LJM were illegal.”

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Skilling was concerned, Fastow testified, that off-balance-sheet deals like the LJMs would “attract attention, and if dissected, people would see what the purpose of the partnership was, which was to mask potentially hundreds of millions of dollars of losses.”

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Fastow tearfully admitted that he “misled” his wife about some of the money the couple earned from Enron-related deals. “She would not, in my opinion, have signed a fraudulent tax return,” Fastow said. Lea Fastow served one year in federal prison for filing a false tax return.

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Fastow said he instructed Michael Kopper to send $10,000 checks to each of his sons. The checks were portrayed as gifts to the boys, but really they were proceeds from a business deal. “I shouldn’t have. It was the wrong thing to do.”